BY CNA team - October 2, 2018
Study: Ethereum’s price slump not due to panic selling
Contrary to popular opinion, the recent drastic drop in the price of ethereum was not due to blockchain firms panic selling the cryptocurrency that they received from conducting initial coin offerings (ICOs), a new report shows.
Instead, Hong Kong-based crypto exchange BitMex’s research arm and TokenAnalyst say in a joint analysis that the blockchain firms that conducted ICOs raising ethereum may have sold their holdings before the recent price slump.
BitMex and TokenAnalyst based their research on 222 blockchain firms that raised US$5.46bil from 15.18mil ethereum.
They noted that based on their studies, these firms have sold exactly the same amount in US dollar terms and currently hold 3.8 million ethereum, around a quarter of what they originally raised. These blockchain startups still hold around US$830mil of ethereum.
From peak to trough this year, ethereum slumped 88% but has steadily clawed back some ground and is hovering around the US$225 to US$230 levels. According to CoinMarketCap data, ethereum’s price was as high as US$1,432.88 and as low as US$170.26.
Based on an 85% reduction in ethereum’s price from the peak, BitMex and TokenAnalyst roughly projected that these firms saw realised gains of US$727mil largely because they often sold before the recent price crash.
“The 3.8m ethereum still on the balance sheets of these projects may not have that much of an impact on the ethereum price, as it represents a reasonably small proportion of the 102 million supply of ethereum. At the same time, on a macro level, the projects may be feeling reasonably confident rather than needing to panic sell,” they add.
They say that even if the EOS year-long ICO, which raised around 70% of the ethereum holdings studied, was excluded, almost the same value in US dollars were sold compared to what these companies originally raised.
The study shows that most of these startups still have net unrealised profit of US$93mil based on an ethereum price of US$215 as many of their ethereum holdings were built up before the price rally at the end of last year.
“Gross unrealised losses, the sum of all the losses for the projects which have lost money by holding ethereum, are US$311mil, which is more than offset by US$403mil in gross unrealised gains,” they say.
Their study shows that over a 26-month period, the peak ethereum holdings of these startups’ treasury accounts were only 5.1 million, far lower than the 15.18 million raised.
“This may indicate that ethereum proceeds from earlier ICOs were reinvested in new projects, either directly or more likely indirectly, after being sold on the market,” they pointed out.
“We conclude that the ICO treasury accounts have a much lower level of exposure to the price of ethereum than many may have thought”.